Many Non-Resident Indians (NRIs) dream of owning property in India. Whether for investment, future residence, or staying connected to their homeland, real estate in India is an attractive option. However, there are rules and guidelines set by the Reserve Bank of India (RBI) and Foreign Exchange Management Act (FEMA) that NRIs must follow before purchasing property.

In this blogs, we will explain everything that all NRIs need to know about that before buying the property in India we explained it in very simple and easy-to-understand way.

Can an NRIs Buy Property in India?

Yes, NRIs can buy property in India. There is no restriction on the number of residential or commercial properties an NRI can purchase. However, NRIs cannot buy agricultural land, farmhouses, or plantation properties, unless they inherit or receive them as a gift.

This means that NRIs can freely invest in apartments, villas, and office spaces, but they do not have the same rights as Indian residents when it comes to farming and agricultural lands. The government of India imposes these restrictions to prevent misuse of agricultural land for non-agricultural purposes. NRIs interested in agricultural land must either inherit it from family members or receive it as a gift from relatives.

Types of Properties NRIs Can Buy in India

NRIs have the freedom to invest in various types of real estate in India, but they must understand the legal limitations before making a purchase. Here is a breakdown of what they can and cannot buy:

Types of Properties are allowed for NRIs

·        Apartments and flats: High-rise apartments in urban areas are a popular choice for NRIs due to security and amenities.

·        Independent houses and villas: If NRIs prefer more privacy, they can opt for standalone houses or luxury villas.

·        Residential plots: NRIs can buy land designated for residential use and build their own homes.

·        Office spaces: Investment in commercial real estate, such as office buildings, is allowed and can generate rental income.

·        Shops and retail outlets: NRIs can purchase retail spaces in malls or standalone commercial buildings.

·        Commercial buildings like hotels and warehouses: Larger commercial properties like hotels and warehouses are also available for NRI investment.

Types of Properties are not allowed for NRIs

·        Agricultural land: Land meant for farming activities is restricted for NRI purchase.

·        Farmhouses: A farmhouse, usually located on agricultural land, is not allowed for direct NRI purchase.

·        Plantation property: Properties with plantations, such as tea or coffee estates, cannot be purchased by NRIs.

How Can NRIs Pay for Property in India?

NRIs must follow specific financial regulations when buying property in India. These payment methods ensure transparency and compliance with RBI guidelines.

·        The property must be paid for in Indian Rupees (INR).

·        Payments must be made through an NRE (Non-Resident External), NRO (Non-Resident Ordinary), or FCNR (Foreign Currency Non-Resident) account.

·        Cash payments are not allowed under any circumstances, as all transactions must be traceable.

·        If an NRI takes a home loan, repayments must be made using these accounts.

·        Payments can also be made through inward remittances from a foreign bank account via normal banking channels.

NRIs Can Take Home Loans in India?

Yes, NRIs can apply for home loans from Indian banks, but the eligibility criteria and repayment process differ slightly from resident Indians.

·        Home loans are given in Indian Rupees, even if the NRI earns in foreign currency.

·        The loan tenure is usually 10-15 years, which is shorter than the 20-30 years typically offered to Indian residents.

·        NRIs need a higher income eligibility due to foreign currency earnings and fluctuating exchange rates.

·        The repayment must be made using an NRE/NRO/FCNR account, ensuring compliance with FEMA rules.

·        Some banks require NRIs to have a co-applicant or local contact person to facilitate the loan process.

Why is Power of Attorney (PoA) and Why Important for NRIs?

Since NRIs may not be physically present in India to sign property documents, they can assign Power of Attorney (PoA) to someone they trust. This person can handle all legal and financial matters on their behalf.

·        The PoA should be notarized in the NRI’s country of residence to be legally valid.

·        It should be attested by the Indian Embassy in that country.

·        The document must be registered in India with the local authorities to be recognized under Indian law.

·        A PoA can be general (broad authority) or specific (restricted to certain tasks like property registration).

What Types Tax NRIs Have to Pay on Property in India?

Taxes While Buying a Property

·        Stamp Duty and Registration Charges – These vary by state and are usually 5-10% of the property’s value.

·        Goods and Services Tax (GST) – 5% GST applies to under-construction properties, while 1% GST applies to affordable housing projects.

Taxes on Rental Income

If an NRI rents out their property, they must pay tax in India.

·        30% TDS (Tax Deducted at Source) is applicable on rental income received by NRIs.

·        NRIs can claim deductions under Section 24(b) and Section 80C for home loan interest and principal repayment.

Capital Gains Tax on Selling Property

·        Short-Term Capital Gains (STCG) – If the property is sold within 2 years, tax is charged as per the NRI’s tax slab.

·        Long-Term Capital Gains (LTCG) – If sold after 2 years, 20% tax with indexation applies.

NRIs can save on LTCG tax by reinvesting in another property or buying Capital Gain Bonds under Section 54 and 54EC.

Steps for NRIs to Buy Property in India

1.     Find the Right Property – Choose a residential or commercial property that meets your needs and budget.

2.     Verify Legal Documents – Check for property title, ownership history, and approvals from local authorities.

3.     Arrange Finance – Use funds from NRE/NRO accounts or apply for an NRI home loan from an Indian bank.

4.     Appoint a Power of Attorney – If you cannot visit India, assign PoA to a trusted person who can sign documents on your behalf.

5.     Sign Sale Agreement – Pay the booking amount and sign an agreement with the seller to finalize the deal.

6.     Make Payment & Register the Property – Pay the full amount, complete stamp duty payments, and register the property in your name.

7.     Tax Compliance – Ensure all applicable taxes are paid and rental income (if applicable) is declared in tax returns.

Conclusion

NRIs can buy property in India with ease if they follow FEMA and RBI guidelines. They can invest in residential and commercial properties, but cannot buy agricultural land. By using NRE/NRO accounts, taking a home loan, and appointing a Power of Attorney, NRIs can complete their property purchase smoothly.

Investing in Indian real estate can be a great decision for long-term wealth creation. If planned well, NRIs can benefit from rising property values and rental income while staying connected to their homeland.